Milan, February 3nd 2011

“Do Readers Dream of Electronic Books?”

Discussion document

Ifbookthen Conference

3A.T. Kearney 15/ eBook/02.2011

Europe is still in start – up phase whereas U.S. are in the fourth year of eBook adoption

2007 2008 2009 2010

Launch of Kindle device

and store

Launch of Kindle device

and store

iPadiPad

Launch of Kindle 2.0 and many

other eReaders

Launch of Kindle 2.0 and many

other eReaders

• Good penetration• Fast growth• Big player present• Clear business model to

be adopted• A clear set commercial

laws

• Low penetration but potential for growth

• Big Players not present in all the countries, with a significant role played by local players

• Low penetration of devices• Not a clear business model to de adopted

• Back – bone infrastructure along the value change almost defined; title availability and end user’ market to be developed

• No ad hoc laws

Big 3 are starting to

entering market

Big 3 are starting to

entering market

European Market

U.S.Market

Launch of Kindle device

and store

Launch of Kindle device

and store

Retailer entered the

market (B&N)

Retailer entered the

market (B&N)

New gen eBook’s market development U.S. vs EU Illustrative

Google eBook Google eBook

KoboKobo

2011

4A.T. Kearney 15/ eBook/02.2011

European eBook’s market size is still small, with UK showing the higher market share

EU

70 - 80

U.S.

700- 800

eBook Trade Market size(mln€; 2010)

eBook Trade Market share by EU (%; 2010)

Sweden0,3%

Italy2,6%

Spain0,5%

France5,3%

Germany25,8%

UK65,5%

8%-10% 0,5% - 0,7%

eBook penetration

vs trade

5A.T. Kearney 15/ eBook/02.2011

In Europe main enabling drivers for eBook booming are not fully developed

Enabling Drivers as of 2010

UK Germany France Italy Spain Sweden

Availability of titles in local language

~ 500.000 ~ 100.000 ~ 50.000 ~ 7.000 ~ 4.000 ~ 4.000

Number of eBook reading devices

~ 1.600.000 ~ 800.000 ~ 600.000 ~ 470.000 ~ 250.000 ~ 150.000

Distributor – eRetailer infrastructure D: 9 R: 15 D: 24 R: 20 D: 2 R: 12 D: 6 R: 20 D: 7 R: 24 D: 2 R: 7

Big Player presenceAmazon; Apple

Apple

Apple; Google

VATPB eB PB eB PB eB PB eB PB eB PB eB

0% 19% 7% 19% 5,5% 19,6% 4% 20% 4% 18% 6% 25%

eBook Penetration 2% - 3% <0,5% <0,2% <0,2% <0,1% <0,1%

Low/ UnfavorableHigh/ Favorable

6A.T. Kearney 15/ eBook/02.2011

EU is expected to grow with a lower speed than U.S. given to different market driver conditions

0,6%

2,7%

1,5%

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

7,0%

8,0%

9,0%

1 2 3 4 5

0,5%

EU

US

6%-7%

8%-10%

4,4%

3,3%

1,2%

0,6%

Expected penetration of eBook in EU after 5 years vs U.S.(%)

Years of adoption

Pen

etra

tio

n v

s. t

rad

e

130-140%

90-100%

CAGR

E-book penetration in Europe is expected to grow with a lower speed than in U.S. for reasons like: -Technology population’s “proficiency” -Local publisher’s protectionism-Availability of ad hoc contents-… still higher competition / offering and tech improvements could drive even faster growth

In particular, UK will probably follow a path similar to US:-CAGR UK : 125%-130%-CAGR other EU: 90%-100%

US=2007EU=2010

US=2010EU=2014

Leverage on US start up (ex. English

titles)

Leverage on US start up (ex. English

titles)

7A.T. Kearney 15/ eBook/02.2011

The number of platform for eBook’ distribution varies cross countries and new business model are emerging

22

67

9

24

Germany UK FranceSpain Italy Sweden

# of platform for eBook distribution

Biggest publishing groups have set up a joint digital platforms (Libreka, Libranda, Edigita)

Biggest publishing groups have set up a joint digital platforms (Libreka, Libranda, Edigita)

•Often people from music distribution (MP3)

•Same functions as wholesalers, owning the rights to (sub) license to retailers and shops; they don’t have direct relation with bookstores but only with online retailers:

•Strong focus on an active marketing and sales to eRetailers

•Mailings and customer relations management

• Integrated technical and legal solutions

•No shop or direct sales to end users

New Business Model: Aggregators in Germany

8A.T. Kearney 15/ eBook/02.2011

The competition for eBook retailing is coming from different types of players that are entering in the market

7

12

15

2020

24

SwedenFranceUKItalyGermanySpain

Type of eRetailer – Italy clustering# of stores for eBook

Brick and Click retailer

Brick and Click retailer

eBook Distributor and eRetailer

eBook Distributor and eRetailer

Pure eRetailer

Pure eRetailer

plus 100+ white-label stores

plus 100+ white-label stores

Modern tradeModern trade

New Comer: Telecom

New Comer: Telecom

11A.T. Kearney 15/ eBook/02.2011

In terms of discount of eBook vs. hardcover list price there’s a gap between U.S. and EU countries

10

20-50%

eBookHardcover

UK:-40%I, E, S: -25%-35%

eBook

12-15

Hardcover

19

Average hardcover list price vs. eBook (€)

• Will EU average discount converge to U.S. discount? • Need to move from cost-plus to demand driven price policy? Impact on piracy?

Average Internet

Price

11-13

-40%

-20%

Agency model is the solution adopted

between publishers and “big players”

Agency model is the solution adopted

between publishers and “big players”

Average Internet

Price

15 - 18 -20%

?

If VAT neutrality the average discount

will increase by 8%-9% vs. paper list

price

If VAT neutrality the average discount

will increase by 8%-9% vs. paper list

price

12A.T. Kearney 15/ eBook/02.2011

For paperback, data are showing that printed and digital price converge

10

20-50%

eBookHardcover List Price

12,0

6-7

Paperback List Price

eBook

-43%

-35%

eBook

11-12

Hardcover List Price

18

10-12

Paperback List Price

8 -9

eBook

-25%Average Internet

Price

11 -13

Average Internet

Price

~14

8-9

• Is the e-book cannibalizing the paperback market?• Will paperback and e-book remain aligned in the future?

6 - 7

-20%

-20%

Average hardcover list price vs. eBook (€ - 20 top sellers)

13A.T. Kearney 15/ eBook/02.2011

As in the U.S., in Europe retailers and distributors will be highly impacted by the eBook growth

eBook

10

23%(2,3)

37%(3,7)

10%(1,0)

30%(3,0)

Hardcover

20

19%(3,8)

50%(10,0)

15%(3,0)

16%(3,2)

Retail

Sales / Distr.

Publisher

Author’s royalty

39%(7,4)

4%(0,7)

Author’s royalty

Publisher

Sales / Distr.

Retail

VAT

eBook

12-15

17%(2,4)

Hardcover

19

20%(2,8)

29%(4,1)

10%(1,4)

25%(3,6)

15%(2,9)

22%(4,2)

21%(4,0)

Sales / Distr.

• Will e-retailers / big three have sufficient market power to ask for higher discount?• Will customers ask for a higher price difference from printed books?

neutral positivenegative

Average hardcover list price vs. eBook (€)

14A.T. Kearney 15/ eBook/02.2011

Questions and answers